Kerry Back
BUSI 721, Fall 2022
JGSB, Rice University
The reason an investor should consider other asset classes in addition to stocks is diversification.
Let’s look at stocks, Treasury bonds, corporate bonds, and gold over a long time horizon.
And look at a broader set of assets over a shorter time horizon using ETFs.
An uptick in inflation is generally accompanied by falling asset markets.
Is there an asset that hedges inflation - doing better when inflation is high?
Let’s look at stocks, bonds, and gold.
The average real return of an asset is a very different issue than whether it hedges inflation.
Asset A has a higher geometric average real return than asset B if, and only if, asset A has a higher geometric average nominal return.
It doesn’t matter for this calculation whether A or B hedges inflation.
So, we’re switching topics, but let’s look at real returns of stocks, bonds, and gold.